In business, it is common for taxes on the sales of goods or services to be imposed. One specific type of tax that is commonly imposed is known as a Value Added Tax (VAT), which functions similar to a sales tax in that it is levied at the time of the sale of the goods or services. In some jurisdictions, including Australia, Canada, New Zealand, and Singapore, this tax is known as “goods and services tax” or GST; and in Japan it is known as “consumption tax”. VAT is an indirect tax, in that the tax is collected from someone other than the person who actually bears the cost of the tax (i.e., namely the seller/seller rather than the consumer).
In general, businesses are permitted to recover a VAT on the materials and services that they buy to make further supplies or services that are directly or indirectly sold to end-users. In this way, the total tax levied at each stage in the economic chain of supply is a constant fraction of the value added by a business to its products, and most of the cost of collecting the tax is borne by business, rather than by the state. The VAT was invented because very high sales taxes and tariffs encourage cheating and smuggling. A common VAT system is compulsory for member states of the European Union (EU). The EU VAT system is imposed by a series of European Union directives.
Unfortunately, there are currently many difficulties when it comes to validating invoices to ensure that the proper VAT has been levied. For example, a company that is VAT registered in multiple EU member states, or in non-EU jurisdictions with a VAT regime, needs a system with capabilities to perform electronic invoicing with multiple VAT regimes rather than one VAT regime. Currently, available (e.g., SAP) systems allows only one VAT registration number to be configured per company code. This limits the flexibility for electronic invoicing for a company that is VAT registered in multiple jurisdictions other than its' resident country. In addition, non-EU entities may acquire EU VAT registration numbers in one or more EU member states, and may therefore be treated as EU entities for VAT purposes. However, current systems do not allow for non-EU entities that have acquired VAT registration numbers to have the VAT registration numbers configured in a company code. This limits electronic invoicing capability for this entity to non-EU non-VAT invoice transactions. Still yet, a business entity could receive electronic invoices from a worldwide seller base where goods transferred between various jurisdictions that have differing tax laws governing electronic invoicing. Although the business entity is located in one country, the business entity may be VAT registered in multiple jurisdictions. As such, each country's tax law requirements and validations must be applied to the incoming invoice as appropriate.
The current solution to ensure proper tax treatment on invoices is to process paper invoices manually. Such a process has many drawbacks including personnel cost, the potential for human error, the lack of tax treatment knowledge for various jurisdictions, increased risk that proper tax treatment may not be applied consistently, and hardcopy invoice storage cost.
In view of the foregoing, there exists a need for an automated system for validating invoices (e.g., and the tax rates therein) that solves at least one of the deficiencies in the existing art.